30 September 2009

Tell me about some of the “water crises” you’ve blogged on (like India) and why they are happening.
India is facing a multitude of water problems. First there is the problem of water quality. Environmental regulation is new to India and is weakly implemented and that means that almost all the major rivers and lakes are polluted to unacceptable levels. Wetlands are disappearing through uncontrolled and unplanned development. Even an iconic wetland like the famous Bharatpur Bird Sanctuary is threatened.
Second is the impact of climate change on surficial water. If trends observed in the decline of Himalayan glaciers hold over the next couple of decades it would affect the summer runoff of Himalayan rivers that are a lifeline to hundreds of millions of people in northern India.
Finally there is the crisis facing groundwater. Unregulated extraction of this resource has lead to aquifer overdraft in many regions. This is a catastrophe in the making since groundwater irrigates over two thirds of arable land in India.

25 September 2009

This post has been sent in by Hee-Young Shin of New School for Social Research, who has also sent it to the FT as a comment.

In a recent article featured on Financial Times ("A militant tendency," September, 18, 2009), a longtime Financial Times' Korean correspondent, Christian Oliver completely distorted the image of legitimate Korean trade union activities. He argued that militant trade union activists had been the number one obstacle to foreign investments in Korea. In addition, he cited recent tragic incidents and other anti-government protests as if they were stirred by a number of radical trade union activitists behind the scene.

But as any astute observer of social issues in Korea quickly recognizes, the example that Mr.Christian Oliver enumerated had nothing to do with trade union activities. First, a recent tragic accident that killed 6 urban poor was the result of brutal police suppression of those who struggled to protect their basic human rights in the face of terrifying urban gentrification.

Second, the massive protest against American beef import was also unrelated with what Christian Oliver called 'militant trade unionism.' The protest against the government decision to import American beef originated from some female high school students' peaceful candle light vigil. Their silence campaign performance turned into massive political protest against the incumbent President, Lee Myung-Bak, and other government officials because students' message and legitimate concerns for the food safety issue resonated among many ordinary Korean peoples including babycarrying house-wives. Thus, citing these examples as if they were incited or plotted by militant trade unionists' activities in some systemic ways is a complete distortion of the basic facts, and renders the credibility of this journalist's argument in serious doubt.

Even when we put aside this type of distortion of recent social issues, the remaining article only shows how Christian Oliver lacks of sufficient knowledge of Korean economic development and related social history.

First of all, a relative low record of Foreign Direct Investments (FDIs) in Korea was not due to what he called 'militant' tendency of labor unions but to historical path dependency in which FDIs had played a substantially minimal role from Korea's early industrialization. From the beginning, the rapid industrialization in Korea was not driven by FDIs but by 'induced investment' guided by the State's industrial and trade policy financed by high domestic saving. Thus, citing 'militant union' activities as if they were the root cause of relatively low FDI flows is completely misleading.

Second, unlike the article's claim, foreign portfolio and equity investment have been incredibly high, causing huge volatility in currency and asset markets. Many economists including Nobel Laureate Joseph E. Stiglitz, Paul Krugman once correctly pointed out that this volatile capital flows, its sudden stop, and subsequent rapid reversal caused the Asian Financial Crisis, with Korea being the latest victim a decade ago. The problem associated with this unregulated financial capital flow was later acknowledged even by the then Managing Director of the International Monetary Funds (IMF) Michel Camdessus and the then US Treasury Secretary Robert Rubin who vehemently advocated capital market liberalization in Asia during the early 1990s and end up with prescribing the failed Latin American type of structural adjustment program. After the financial crisis, Korea's capital market was further liberalized by a series of policies imposed by the IMF as parts of its loan conditionality. Since then foreign equity flows substantially rose, potentially increasing the vulnerability of the economy to the vagary of foreign investors. Thus, if Christian Oliver meant portfolio and speculative equity flows by indicating 'foreign investors being shy away from Korea because of militant unionists,' the trend has been completely opposite to what he seems to worry. The problem in Korean economy is not lack of foreign investors but rather too much speculative inflows of portfolio investment.

Third, the seeming 'radical' or extremely violent resistance on the part of Korean trade unionists (even if it were true) was a deplorable result of the authoritarian government's – long-lasting military dictatorship during the 1970s and 1980s, which was ideologically backed by Milton Friedman type of Chicago School at that time and incumbent right-wing conservative Lee government's overwhelmingly brutal suppression of basic union activities. How can socially marginalized trade unionists with less than 15 percent of union membership record nationwide become such a destabilizing force in Korean economy? The journalist simply failed to recognize the apparent fact that the root cause of the radicalization of unionists lies in the authoritarian government's mismanagement of labor relation and brutal suppression of basic trade union activities, something that should not happen in most OECD countries and Western European context.

Finally, the article shows how Christian Oliver naïvely think about the controversial issue such as the labor market flexibility in Korea. Unlike the incumbent Korean government's propaganda, the policy targeted toward improving labor flexibility simply has meant increasing the number of workers who can be easily fired and dismissed without having necessary social safety net. These 'nonregular' workers have had to face explicit discrimination in terms of wage compensation and job security. Even though they work the same working hours engaging in the same skilled task, their wages and salaries have been less than two third of their 'regular' counterpart. The increasing number of non-regular workers, which was a byproduct of drastic corporate restructuring during and after the Asian financial crisis, already soared to near 60 percent out of total workforce as of 2005. In addition, since most of these workers are women and young college graduates, the wage discrimination and increasing job insecurity sorely borne by them are no longer simply a matter of minor reservation of labor rights amid emergent economic crisis but became a serious infringement of basic human rights.

Considering all of these facts, it is certain that the journalist failed to convey accurate information about Korean labor relation today. In doing so, he selected a handful of extremely conservative government officials or those who represent the exclusive interest of Korean conglomerates for his interview, without even mentioning that some of them explicitly argued that the basic labor rights provisions should be dropped from the Constitution. Ironically, that interviewee, whose name is Park Ki-Seong, is the guy who is now heading Korea Labor Institute, a government-funded institute, which is supposed to engage in various researches for improving backward labor conditions and advancing labor relation in Korea. On balance, any journalist has a freedom to choose to have a certain ideology and perspective. But it is too sad to see a foreign-born journalist residing in Seoul Korea blindly swallowed what mistrusted government officials propagandized, without paying due attention to what other stakeholders demand and what basic facts reveal.

21 September 2009

The idea of this mail is to show how production systems can behave in erratic ways when something like oil gets erratic. Keep in mind that production systems have lags - meaning they take time to adjust to new levels of prices. When oil prices are oscillating as wildly as $147 in July 2008, $ 34 in Feb 2009 to $70 today - other systems too will behave weird.

Japan and Belgium are a continent removed; but, do not underestimate the disruptive power of such swings in oil prices. Climate change also chips in. Reduced European milk products/derivatives demand due to the recession will also be chipping in.

An economy cannot be immune to the constraints imposed by the ecosystem that it dwells within. As long as there was slack within the various sub-systems of the ecosystem, disruptions did not manifest; as we are
reaching a point of almost no slack, the disruptions will manifest more frequently.

We live in interesting times for sure :)

The first link below is a video on Belgium in 2009 and the second on Japan in 2008Three million litres of milk sprayed on the field
Belgian milk producers pour about 3 million litres (793,000 gallons) of milk on a field near Ciney, September 16, 2009, in protest over a growing industrial dispute over low prices. Low milk prices they say are bankrupting farmers. Source: REUTERS

The world's second largest economy is now crying over spilled milk — and its delicious by-product, butter. Japan, insulated from rice shortages that plague other parts of Asia, is experiencing an unprecedented shortage of the household staple — and discovering that it is not as immune from the growing global food crisis as it wants to be.

The butter shortage results from a chain of events. When the country suffered an overproduction of milk in 2006, the government ordered about 1,000 tons of raw milk poured down the drain and dairy cows slaughtered to prop up prices and defend local milk farmers. Dairy prices were then managed to retain their advantage to imported milk and butter, whose prices were inflated by tariffs. (To protect domestic butter, the tax on imported butter went up twice last year. There is a nearly 30% tariff on butter imports.)Butter has a strange status in Japan. Historically, butter is a reminder of Japan's first contacts with the West — the islanders complained that the foreigners were bata-kusai , that is, "butter-stinkers." But since the 1960s, local butter making and consumption has been seen as a symbol of Japanese self-sufficiency in and mastery of an originally Western product. The shortage is a blow to that independent self-image.

But now grain-feed prices have risen as a result of a drought in Australia as well as the accompanying use of corn for ethanol, which has reduced the amount available for feed for Japan's cows. The drought has also cut back on milk that would have been imported to supplement the Japanese market. Combined with competing demand for milk and milk products from emerging markets in China and Russia, the result is a collapse of the local butter production in Japan.

Norman Borlaug’s association with India began in the late 1960s. India was then importing 10 million tonnes of wheat and “we lived a ship-to-mouth” existence. The introduction of the dwarf variety of wheat developed by him in Mexico was a turning point in India’s food production pattern.

And the Hindustan Times carried this piece on ‘The American who helped India conquer hunger’

Borlaug had been criticised by environmentalists for his innovation of genetically modified food (food developed by altering gene structures) and advocating the use of fertilisers, insecticides and pesticides. “It is better to die eating genetically modified food instead of dying of hunger,” he remarked at PAU.

Within three decades, the pattern was to lead to a new kind of devastation — extreme rural indebtedness on the one hand and high levels of soil salinity on the other. The unprecedented levels of rural migration to urban areas in the 1990s, was only one of the consequences. The other was the rapid decline in the productivity of cereal farming and a wholesale turnaround to cash crops. Cotton, sugarcane, tobacco, bananas, coconuts, etc. replaced rice, wheat and millets in many pockets. This was to lead to further experiments in hybridisation of production and an invasion of Indian agriculture by multinational giants like Monsanto, who could exercise long-distance control over the entire process.

To be sure, agricultural productivity has declined, but that drop is due to a complex set of reasons: Nothing, not even population, rises at the same rate over a period of time. The drop in the size of a farm due to inheritance leads to a drop in productivity. Politicized subsidies encourage waste of water and power, as well as overuse of fertilizers and pesticides by the well-connected farmers, skewing distribution of resources. Warehouses are poorly managed, and a chunk of what is produced gets wasted in transit, or consumed by rats. Insufficient and inefficient irrigation means Indian agriculture remains a gamble with monsoon. Borlaug wanted poor farmers to be paid remunerative prices; governments avoided that, in order to placate the influential urban constituencies.

There is a lot that needs to be fixed in Indian agriculture. But don’t blame Borlaug for these problems. His legacy is the gift of life for millions.

It is true that our problems as they exist today need an overhaul in many existing systems and Borlaug is not responsible for them. However, one of Menon’s points needs to be stressed:

The Vishnu Mitter Institute of Paleo-Botany in Lucknow, for example, has studies showing that while there were over 127 varieties of rice alone being cultivated in the Indian subcontinent during the first two decades of the 20th century, these were steadily dropping and had reduced to 18 within the first two decades of the Green Revolution period. Along with everything else, the idea of agricultural and food diversity too was receiving a knock. Mono-culture and the idea of single-point control systems, so important for designing market strategies, became the norm.

Even as we continue to wage the battle against hunger in India today (another post on that later) somewhere along the way the ecological balance has been lost and we are all the worse off for that.

14 September 2009

The Cambridge Journal of Economics is offering free online access to its July issue, valid till 16th October. The list of articles reads quite like a CAPORDE lecture schedule, some of them are as follows:

James Crotty Structural causes of the global financial crisis: a critical assessment of the ‘new financial architecture’

Jamie Morgan The limits of central bank policy: economic crisis and the challenge of effective solutions

Fiona Tregenna The fat years: the structure and profitability of the US banking sector in the pre-crisis period

Roberto Frenkel and Martin Rapetti A developing country view of the current global crisis: what should not be forgotten and what should be done

José Antonio Ocampo Latin America and the global financial crisis
Axel Leijonhufvud Out of the corridor: Keynes and the crisis
Tony Lawson The current economic crisis: its nature and the course of academic economics

Carlota Perez The double bubble at the turn of the century: technological roots and structural implications

12 September 2009

Some of the comments left behind on that article are also worth reading:

We often forget that when studying humans, which is the root of economics, hypothesis precedes calculation. If your hypothesis is based upon the calculation, you’re missing something.

The problem with math in economics is that most economists are amateur mathematicians trying to fake it.

Learning that some people may have understood your magazine article as “downplaying” maths in economics, confirms my view on how there is a trend on large part of the world to come up with black and white viewpoints on almost everything (regardless of whether there is math in the process). And that they believe deterministic outputs are scientifically correct. If I understood you right, your point was that economics is a grey system with hard to predict dynamics.

I don’t think you explained this well. What you need to explain is that mathematics can be used to describe an enormous number of worlds, only one of which is reality. The trick is to recognize whether your mathematics is close to reality or whether it describes some imaginary world.

suppose someone needs to quote Marshall: “(1) Use mathematics as shorthand language, rather than as an engine of inquiry. (2) Keep to them till you have done. (3) Translate into English. (4) Then illustrate by examples that are important in real life (5) Burn the mathematics. (6) If you can’t succeed in 4, burn 3. This I do often.”

No amount of mathematical modelling will provide a solution to the social functioning of bureacracy, professionalization and hierarchy, the nature of health itself and issues of communal and individual responsibility.You need to start asking from whence your basic intuitions of community and social justice are derived.This should take you at the least into a confrontation with the saint of rightwing individualism, Hayek, and an examination of symbolic economics.A confrontation with culture should force the insight that consumption, growth and GDP are not technical questions but emerge out of historical and semantic questions of value and productivity that relate economics to philosophy.

Read more at the website itself..There is also a petition in case readers are interested in signing up, asking for Revitalizing Economics After the Crash.

09 September 2009

Today's Express has a piece by Mihir Sharma - the biggest failure of economics is not the finance theorists and their belief in rational, efficient markets, but is on climate change

we scoff at “exaggerated” future costs from warming. For years mocked as dismal killjoys by everyone else, we have picked on solemn, doom-prophesying climate scientists like the second geekiest kid at school sneers at the geekiest. A profession central to which is working out the cost of the opportunity foregone has a massive failure of imagination when it comes to climate change costs.

There are other examples of a deeply-ingrained fanaticism getting the better of common sense. Take the furore surrounding the Stern Report, a big cost-benefit analysis that argued acting now on climate change was economically wise.

But economists undermined the report politically by attacking Stern’s choice of the “rate of time preference” — how much we in the present value the future. In particular, they said Stern committed the cardinal sin of not using the rate at which the markets valued the future, because the financial markets are efficient about information like that. (Seriously. This is true.)

Arguing about macro-costs and benefits and growth paths won’t help. Get micro-economists on the job instead.

08 September 2009

Kattel, Kregel and Reinert have a good paper bringing out the relevance of Ragnar Nurkse in re-working current development economics.

Abstract

In this essay we aim to show, first, how the classical development economics, that of Ragnar Nurkse's (1907-1957) generation, epitomized the best development practices of the past 500 years and crafted them into what Krugman rightly calls high development theory. It is not a coincidence that the post-World-War-II era, when Nurkse and others ruled the development mainstream, is one of exceptionally good performance for many poor countries. Second, we argue that the alleged death of the classical development economics and subsequent rise of the Washington Consensus has to do not so much with increasing modeling in economics, a way of research purposely discarded by many classical development thinkers, but much more with misunderstanding the reasons for East Asia's success and Latin America's demise; we show that the root cause of this misunderstanding - that goes in fact back to 'misreading' key passages in Adam Smith - is the role of technology, or of increasing returns activities, and of finance, in development. Third, we aim to indicate key areas of further research that the current development mainstream should pursue in order to re-learn how to create middle-income economies and middle-class jobs.

There is also a new Facebook group you can join: 'Ragnar Nurkse' which will have more info and discussions starting soon.

04 September 2009

My article in the Financial Express today about drinking water data reporting in India : Regional disparities abound in the states across the country and while govt. statistics report 88% of households have access to improved source of drinking water, the devil lies in the detail. It is time we moved to surveys on the quality of the water used, and not the source.

So what should be the objective of drinking water supply management in India? Not just increasing access to ‘improved’ sources of drinking water, but increasing access to a service that is reliable, affordable and sustainable both financially and environmentally. Such an objective will raise considerable debate over the right way forward. However, one golden principle stands out here—water is an increasingly scarce resource, so it has to be used most efficiently and equitably. Reporting appropriate data would go a long way in raising sensibility towards achieving the MDG of increasing sustainable access to safe drinking water.

03 September 2009

John Kay in the Financial Times on why its never rational to be wrong..When farmers in Papua New Guinea plant only half their field because they believe envious neighbours might employ witchcraft if they plant more..are they being rational or not?According to Martin Cox, this is a rational decision, because it follows a consistent set of beliefs..but Kay asks, is this really rational?

Different social contexts lead some people to believe in juju and others to believe that the alchemy of securitisation can turn subprime mortgages into triple A obligations. The test of the rationality of these beliefs is not their internal consistency, but whether they guide us to wise decisions. By that criterion, neither scores well.

02 September 2009

Subir Roy's article in the Business Standard about the impending water crisis in North India, his conclusion:

The most long-term and lasting solution is for India to join in the battle to reverse global warming so that the glaciers don’t melt at their present rate. India also has to change its entire culture of water use — go easy on cultivating non-essential crops that are water guzzlers, like sugarcane; widely adopt farm technologies like sprinkler and drip irrigation which use far less water; recycle waste water a lot more; rejuvenate rivers; and recharge ground water by storing and saving the runoff through water harvesting. These measures have by now become indisputable. Yet, the spectre of a creeping desert continues to haunt us because of grossly inadequate action.

The problems of groundwater are also reported in geologist Suvrat Kher's blog ..not just for North India but he also links up groundwater, geology and farmer suicides in Maharashtra - a clear case for the need to look into the problem in more depth than merely a policy of loan waivers..

The Tata Institute of Social Sciences report on farmer suicides found that farmers had little or no groundwater available to them during times of rain failure. A combination of complex hydrogeology and poor management of groundwater resources has exerted a powerful influence on the lives and livelihoods of Maharashtra farmers.

As he says

If groundwater is to take center stage in our adaptation to climate change geological knowledge will have to play an increasingly important role in how this resource is managed and exploited.

This problem is actually worldwide, as Robert Glennon pointed out in the Washington Post

In the United States, we constantly fret about running out of oil. But we should be paying more attention to another limited natural resource: water. A water crisis is threatening many parts of the country -- not just the arid West.

In the United States, we've traditionally engineered our way out of water shortages by diverting more from rivers, building dams or drilling groundwater wells. But many rivers, including the Colorado and the Rio Grande, already dry up each year. The dam-building era from the 1930s to the 1960s tamed so many rivers that only 60 in the country remain free-flowing. Meanwhile, we're pumping so much water from wells that the levels in aquifers are plummeting. We're running out of technological fixes.

The study explores the reasons behind some people 'choosing' to stay behind during Hurricane Katrina and the implications for policy making.

The psychologists framed the study around a distinction between two models of human agency — the disjoint and the conjoint — in order to understand what happened in New Orleans and why.

The disjoint model is built on assumptions of independence. It assumes that individuals have opportunities, make choices to influence their environment and that their choices are a reflection of their goals and preferences. This is the model that dominates mainstream American discourse and culture, and the model of agency held by many of the people who did leave.

The conjoint model, on the other hand, is built on assumptions of interdependence. Here, human agency is primarily about adapting one's self to the world (rather than trying to change the environment), often through faith and spirituality, and decisions are more community-oriented. Though the conjoint model might seem more familiar to many middle-class observers as an East Asian philosophy, the authors argue that these attitudes are also prevalent in working-class Americans.

That's because many working-class folks lack the resources to engage in individualistic, independent behaviors. And this particular lived experience leads them to adapt by developing a sense of personal agency in which they make the most of their lives, given the challenges they face in exerting meaningful control over their environment. This is something that is often very difficult for outsiders to get.

This is the part I liked best:

"Despite the whole thing about putting yourself in someone else's shoes, you won't necessarily get it," Hamedani said. "Even to walk a mile in someone else's shoes. You have to walk through their world and how that informs who they are."

All of the social sciences are using one and the same model of the person," Markus said. "And that's a particular model that comes out of the middle-class American context in particular. It's the rational actor of economics, the reasonable person of the law.

"But as far as it goes," Markus added, "it's really right for about 5 percent of the world's population. When it comes down to it, when we say 'people,' we're talking only about North American, middle-class people with a reasonably high level of education and resources. ... This model is an historical and philosophical product, but it's not the way people naturally are. There are other ways to be an agent that deserve study."

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This blog has been set up to bring together various issues that impact development - not restricted to economists but open to all fields; a pluralistic approach, building up on a momentum initiated in 2001 through the Cambridge Advanced Programme for Rethinking Development Economics. As such there is bound to be diversity of opinions in the posts and the views expressed by the individuals posting are theirs alone. *The blog manager is not responsible for the accuracy and validity of the statements made in the blog. *All links mentioned are valid as on the day of the post. *There is no intent of generation of revenue from this blog, it is not a commercial venture. *Readers should keep in mind that authors come from various countries, with different languages and cultures and there is no intention to malign any religion, ethnic group, organization, or individual. *If any view isfelt to be sensitive or hurtful, readers can bringforth their viewpoints by email.